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🇰🇷 South Korea /Economy & Trade

AI boom fuels record global corporate bond issuance amid 'debt-to-AI' concerns

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Global corporate bond issuance hit a record $3.68 trillion in the first half of 2024, driven by companies investing heavily in Artificial Intelligence (AI).
  • Major tech firms like Amazon, Nvidia, Meta, and SoftBank Group have issued substantial bonds to fund AI data centers, chip development, and generative AI investments.
  • Concerns are rising that this 'debt-to-AI' trend could lead to financial market instability if AI investments do not yield sufficient returns.

Global companies are increasingly borrowing money to fund their ventures into artificial intelligence, leading to a record surge in corporate bond issuance worldwide. This trend, dubbed 'debt-to-AI,' saw global corporate bond sales reach an unprecedented $3.68 trillion in the first half of 2024, surpassing previous records for the second consecutive year.

The substantial increase, a 10% rise compared to the same period last year, is largely spearheaded by the AI and semiconductor sectors. Amazon.com led the pack, raising $36.8 billion through corporate bonds in March alone, with its total funding, including euro-denominated bonds, reaching $54 billion. These funds are primarily earmarked for AI data centers and internet infrastructure.

Other tech giants are following suit. Nvidia and Meta each issued bonds worth $25 billion to finance advanced chip development and AI initiatives. Japan's SoftBank Group also raised approximately 570 billion yen ($5.13 billion) to invest in generative AI, including a stake in OpenAI, the operator of ChatGPT.

According to a Bank of America report, corporate bonds issued for AI-related purposes are projected to reach $220 billion in 2024 alone, exceeding the total bond issuance of all Japanese companies in the same year. This massive influx of capital into AI underscores the industry's perceived importance and potential.

However, this aggressive borrowing strategy is raising concerns about potential financial market instability. While investment in AI is seen as crucial for future growth, there's a risk that these investments may not generate sufficient returns to cover the debt. The Bank for International Settlements (BIS) has warned that a slowdown in the AI boom could threaten the stability of the financial system, particularly the vulnerable bond market, as companies struggle to repay their debts.

If the AI boom falters, it could threaten the stability of the financial system, especially the bond market.

— Bank for International Settlements (BIS)Warning about the potential risks of excessive corporate borrowing for AI investments.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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